Oil bounces as sell-off seen overdone

Brent crude oil rose on Thursday, snapping a six-session losing streak as dealers said it looked oversold after losing 10 percent this month.

Oil earlier in the day fell to a fresh nine-month low, extending a fall that was part of a broad sell-off in commodities this week triggered by disappointing U.S. and Chinese economic data, raising concerns about weak demand.

But traders said the slide had run out of steam for now and that some investors were starting to move back into the market at lower levels.

Brent crude futures for June delivery were up 56 cents at $98.25 per barrel at 1312 GMT. The price had earlier slipped to $96.75, its weakest since July last year.

Brent shed more than 8 percent in the six sessions through Wednesday's close, their steepest six-day drop since September 2011.

U.S. crude futures added 40 cents to $87.08 a barrel, after earlier shedding more than $1 to hit a low of $85.61.

Tony Machacek, a broker at Jefferies Bache, said there was scope for further weakness in coming sessions.

"The market looks a tad oversold on a technical basis, but after the price consolidates, it won't look so stretched on a relative strength basis, and we could see another leg lower."

Supply concerns also supported prices. Royal Dutch Shell declared force majeure on Nigerian Bonny Light crude exports on Wednesday after shutting down the 150,000 barrel per day Nembe Creek pipeline for repairs.

The weekly report from the U.S. government's Energy Information Administration showed a surprise drop in U.S. crude inventories, but an increase in distillate and gasoline supplies on the U.S. East Coast, which includes the New York harbour.

Stockpiles of crude at the Cushing, Oklahoma delivery point for the U.S. oil futures contract, however, climbed by more than a million barrels, the data showed.

Relatively high levels of supply have contributed to oil weakness in recent sessions, but this factor is likely to ease soon, said Filip Petersson, an analyst at SEB in Stockholm.

"There's been significant oversupply, but refineries are starting up in Asia and Europe, and they will soak much of this up," he said. He saw possible further weakness in the next few days but a move above $100 within a week or two.

POLITICAL UNCERTAINTY

Any gains in oil prices were capped by concerns about political uncertainty in the euro zone, where Italy's parliament failed to elect a president in its first vote on Thursday.

Deciding on a leader is seen as a crucial step towards resolving a stalemate since the inconclusive election in February and for the government to carry on with fiscal reforms.

China's implied oil demand fell to its lowest in seven months in March, fanning concerns that recovery in demand may be less vigorous than expected.

OPEC members will discuss holding an emergency meeting if oil prices stay below $100 a barrel, Iran's oil minister said as reported by Iran's Press TV, but the idea got little support from members across the Gulf.

The next meeting of the Organization of the Petroleum Exporting Countries is scheduled for May 31.

Some analysts said the lower price of oil is prompting speculation that OPEC is likely to take action to cut supply.

"Oil prices below $100 per barrel could be short-lived as rumours are already beginning to circulate about a concerted move towards a drop in oil production from OPEC, in a repeat of what happened last year when oil dropped below $90 per barrel," Gary Hornby, an energy analyst at Inenco, said.

"This could well force oil traders to start purchasing again after the steep falls we have seen, even before any potential production cut is agreed." (Additional reporting by Jessica Jaganthan in Singapore and Osamu Tsukimori in Tokyo; editing by James Jukwey and Jane Baird)